For many, tax time is a last minute scramble to get all their receipts together and drop them off at their bookkeepers or accountant’s office, causing even more chaos when everything has to be sorted through. To avoid this from happening, create a plan that helps you prepare for your taxes throughout the year.
At Mark S. Freedman, CPA, Inc. we work with you year-round to make sure you are on track for what you want to do and where you want to be in your financial plan. Below are some tips on how to start preparing for next year’s taxes, and what to do about your withholding taxes and charitable contributions, as well as tax incentives for higher education, earned income tax credit, tax credits for seniors, gift giving and more. Contact us for more information.
Five Tips For Early Preparation
The IRS encourages everyone to get a head start on tax preparation. This helps avoid the last-minute rush. The sooner you submit your tax return, the better, as early filers receive their refund in a more timely manner.
Here are five ways to get a head start on your taxes before the April 15 deadline rolls around:
For more tips on how to be proactive about your taxes, speak to the experts at Mark. S. Freedman, CPA, Inc. today.
Check Your Withholding Tax to Avoid a Surprise
If you owed tax last year or received a large refund, you may want to adjust your withholding tax. Owing tax at the end of the year could result in penalties being assessed.
The IRS Withholding Calculator on IRS.gov helps taxpayers compute the proper amount of tax to withhold. Worksheets in Publication 505, Tax Withholding and Estimated Tax can also be used to do the calculation. If the result suggests you are not withholding enough tax or withholding too much, you can submit a new W-4, Withholding Allowance Certificate, to your employer.
Contact Mark S. Freedman, CPA, Inc. and find out how we can help you better prepare for these little surprises.
When preparing to file your federal income tax return, don't forget contributions to charitable organizations. These donations can add up to a nice tax deduction. If you itemize, use IRS Form 1040, Schedule A.
Here are a few tips to help make sure your contributions pay off:
You cannot deduct contributions made to specific individuals, political organizations and candidates, the value of your time or services, and the cost of raffles, bingo, or other games of chance. Contributions must be made to qualified organizations to be considered deductible.
Ask the organizations you’ve donated to whether they qualify and if donations to them are tax-deductible. If you cannot reach the organization, you can look for it on the Exempt Organizations Select Check online tool or call the IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Churches, synagogues, temples, mosques and governments are not required to apply for this exemption to be qualified. They will ask you for the organization’s official name and where its headquarters are located.
To get your charitable tax-related questions answered, contact Mark S. Freedman, CPA, Inc. today.
Tax Incentives for Higher Education
The tax code provides a variety of tax incentives for those paying higher education costs or repaying student loans. You may be able to claim an American Opportunity Credit or Lifetime Learning Credit (formerly The Hope Credit) for the qualified tuition and related expenses of students in your family who are enrolled in eligible educational institutions.
If you don't qualify for the credit, you may be able to claim the Tuition & Fees Deduction for qualified educational expenses. You cannot claim this deduction if your filing status is “Married Filing Separately” or if another person can claim an exemption for you as a dependent on his or her tax return. This deduction phases out at higher income levels.
The interest you pay on a qualified student loan can often be deducted. The deduction is claimed as an adjustment to income, eliminating the need to itemize your deductions on Schedule A Form 1040. However, this deduction is also phased out at higher income levels.
Need more information on tax incentives for higher education? Contact our office today.
Earned Income Tax Credit for Certain Workers
Many Americans are still unaware of the Earned Income Tax Credit (EITC), a refundable federal tax credit offered to reduce poverty for individuals and families that do not earn high incomes. Those taxpayers who qualify could receive a substantial tax reduction. However, only four out of five individuals eligible for this tax savings apply for it.
EITC is based on earned income and the number of qualifying children in the household, who must meet the relationship, age and residency requirements. Only one person in the household can claim this credit. This form is in addition to, not in place of, your tax return.
To find out more about Earned Income Tax Credits, please contact us at firstname.lastname@example.org.
Credit for the Elderly or Disabled
If you were age 65 or older, or were on permanent or total disability by the close of last year, you may be eligible for the Credit for the Elderly or the Disabled. The maximum amount of this credit is in constant flux.
According to the IRS, you can take this credit if:
To find out if you’re eligible for this credit, please contact the tax experts at Mark S. Freedman, CPA, Inc. for assistance.
It seems so simple. You give your car to an organization or charity and they give you a slip for a tax donation. Beware that specific rules apply for tax deductions on cars donated to charities that may limit the amount you can claim.
To make sure you don’t have a problem with your tax return, please take note of the following:
If you’re thinking of donating your car to a charity or have already done so and aren’t what to do next contact us.
Plug-In Electric Vehicles (PEVs)
If you have a new plug-in electric vehicle (passenger vehicle or light truck), you may be able to apply for the Qualified Plug-in Electric Drive Motor Vehicles tax credit (Internal Revenue Code Section 30D).
The credit is available only to the original purchaser of a new qualifying vehicle. The vehicle must be placed in service the same year the credit is being claimed on the return. If the vehicle is being leased, then the credit is available only to the leasing company or agent. Also, the vehicle must be used primarily in the United States.
Additional conditions regarding qualified manufacturers and phase out rules may also apply in determining credit eligibility. Visit IRS.gov and search for "plug-in vehicles."
Contact our office for more information on tax credits for PEVs.
Did you know that you may be able to deduct certain taxes on your federal income tax return? You can. File Form 1040 and itemize deductions on Schedule A.
There are four types of deductible non-business taxes:
Any estimated taxes paid to state or local governments and any prior year's state or local income tax, as long as they were paid during the tax year, can be deducted. When deducting sales tax, you may deduct actual expenses or use optional tables provided by the IRS to determine the amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate. When paying your taxes you’ll be asked to check a box on Schedule A, Itemized Deductions, to indicate whether the deduction is for income or sales tax.
Real estate taxes from any state, local, or foreign government on real property can usually be deducted. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount paid during the year to the taxing authorities. Normally, your lender will send IRS Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.
To claim a deduction for personal property tax, the tax must be based on value alone and imposed on an annual basis. For example, the annual fee for the registration of your car would be a deductible tax, but only the portion of the fee that was based on the car's value.
Find out more about deductible taxes by contacting email@example.com.
Affordable Care Act
The Individual Shared Responsibility Provision requires that you and each member of your family have qualifying health insurance (minimum essential coverage), qualify for a health coverage exemption, or make a shared responsibility payment when you file. If you, your spouse and dependents had health insurance coverage all year, you will indicate this by simply checking a box on your tax return.
If you have the minimum essential coverage, you do not need to do anything more than maintain that coverage and report it when you file your tax return.
If you have to make an individual shared responsibility payment, you will need to use the worksheets in the instructions for IRS Form 8965, Health Coverage Exemptions, to determine the shared responsibility payment amount due. The amount due is reported on line 61 of IRS Form 1040 in the Other Taxes section, and on the corresponding lines on IRS Form 1040A and 1040EZ. You only make a payment for the months you did not have coverage or qualify for a coverage exemption.
Confused about the Individual Shared Responsibility Provision of the Affordable care Act? Contact the tax experts at Mark S. Freedman, CPA, Inc.
If you have given any one person gifts valued at more than $14,000, it is necessary to report the total gift to the IRS. You may even have to pay tax on the gift. The recipient of the gift does not have to report the gift to the IRS or pay either gift or income tax on its value.
What qualifies as a gift? Any property you gift, including money, or the use of or income from property, without expecting to receive something of equal value in return is a gift. If you sell something below its value or make an interest-free or reduced-interest loan, you may be making a gift.
There are some exceptions to the tax rules on gifts. The following gifts do not count against the annual limit:
If you are married, both you and your spouse can give separate gifts of up to the annual limit to the same person without making it a taxable gift.
For more details on the IRS restrictions for gifting contact Mark S. Freedman, CPA, Inc.
Oops! You just submitted your tax return and then found a mistake in it. What should you do? You may need to amend your return.
The IRS will correct any mathematical errors or request missing forms (such as W-2s) or schedules. These minor infractions do not require an amended return. However, if your filing status, total income or deductions or credits have changed, an amended return is necessary.
Use IRS Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed paper or electronically-filed IRS Form 1040, 1040A, or 1040EZ return. Enter the year of the return you want to be amended at the top of IRS Form 1040X. If you are amending more than one tax return, use a separate1040X for each year and mail each in a separate envelope to the IRS processing center for your state. The 1040X instructions list the addresses for the centers.
Form 1040X has three columns.
If the changes involve another schedule or form, attach it to Form 1040X. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you owe additional tax for the prior year, Form 1040X must be filed and the tax paid by April 15 of this year, to avoid penalties and interest.
In most cases, to claim a refund Form 1040X must be filed with three years from the date you filed your original return, or within two years from the date you paid the tax, whichever is later.
If you need help with or have questions about your amended tax return, contact the tax professionals at Mark S. Freedman, CPA, Inc.
Refinancing Your Home
Taxpayers who refinanced their homes may be able to deduct some loan-associated costs. If you itemize the points paid to obtain a home mortgage, you may be eligible to deduct that amount as mortgage interest. In some instances the points can be fully deductible in the year they were paid. However, points paid to refinance a home mortgage usually must be deducted over the life of the loan.
The interest deduction for points is arrived at by dividing the points paid by the number of payments to be made over the life of the loan. Taxpayers may deduct points only for those payments made in the tax year. For example, a homeowner who paid $2,000 in points and who would make 360 payments on a 30-year mortgage could deduct $5.56 per payment, or a total of $66.72 (if those 12 payments were made in one year).
If you use part of the refinanced mortgage money to finance home improvements and if you meet other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid. Additionally, if you refinance your home mortgage a second time, the balance of points paid for the first refinanced mortgage may be fully deductible at pay off.
Other closing costs (appraisal fees and other non-interest fees) usually are not deductible. Also, the amount of Adjusted Gross Income can affect the amount of deductions that can be taken.
Please contact us if you've recently refinanced. We can offer sound tax advice.
Selling Your Home
If you sold your main home, you may be able to exclude up to a $250,000 gain ($500,000 for married taxpayers filing jointly) from your federal tax return. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years.
To take advantage of this exclusion, you must own your home, and it must have been used as your main residence for at least two out of five years prior to its sale. You are not eligible if you sold another home during the two-year period and excluded gain on that home.
If married and you and your spouse file a joint return for the year of the sale, you can exclude the gain if either of you qualify for the exclusion. However, both spouses must meet the use test to claim the $500,000 maximum amount.
You may be eligible to exclude a reduced maximum amount of gain on our home, even if you don’t meet the ownership and use tests, if you sold your home due to health issues, a change in your employment location, or certain unforeseen circumstances, such as divorce or legal separation, natural or man-made disaster resulting in a casualty to your home, or an involuntary conversion of your home.
If you’ve sold your home or are planning to do so soon and want to know about the tax advantages, contact firstname.lastname@example.org.
U.S. citizens are taxed on their worldwide income, not just the money made in the U.S., whether they live in the U.S. or in another country or territory. This includes earned income (wages and tips) and unearned income (interest, dividends, capital gains, pensions, rents and royalties. This rule applies even if you do not receive an IRS Form W-2, Wage and Tax Statement, or an IRS Form 1099 (information return).
If you are living outside the U.S., you may be able to exclude up to $99,200 for 2014 and $100,800 for 2015, of your foreign source income if it meets certain criteria. This exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S.
Find out how to properly report your foreign income to the IRS. Contact Mark S. Freedman, CPA, Inc. today.
Marriage or Divorce
If you were married or divorced during the last year, make certain your name on your tax return matches the name registered with the Social Security Administration (SSA). A mismatch between a name on the tax return and a Social Security number (SSN) could increase a tax bill or reduce the size of any refund.
To inform the SSA of a name change, file Form SS-5 at a local SSA office. It takes approximately two weeks to have the change verified. The form is available on the agency's website, www.ssa.gov, by calling toll free 1-800-772-1213 or at local offices provided on the SSA website.
Not sure how to handle your new legal status? Contact the tax professionals in Northridge, CA at Mark S. Freedman, CPA, Inc.
Ayuda en Español
The IRS provides free Spanish-language products and services (pre-recorded tax topics, refund information, tax publications and telephone assistance) through its TeleTax toll-free phone system, opened 24/7 (1-800-829-4477).
The Spanish-language page has links to items such as forms and publications and warnings about tax scams, as well as information on the Earned Income, Child credits and various other tax credits. The site’s EITC Assistant can assist you to determine eligibility to receive the Earned Income Tax Credit..
Filling an Extension
If you can't meet the April 15 deadline to file your tax return, you can get an automatic six-month filing extension from the IRS. The extension will give you extra time to get the paperwork in to the IRS, but it does not extend the time you have to pay any taxes due. You will owe interest on any amounts not paid by the April deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.
When requesting an extension, make sure to estimate the amount of tax. At the same time, you may send a payment for the expected balance, but this is not required for you to obtain the extension.
To get the automatic extension, file IRS Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return, with the IRS by the April 15 deadline, or make an extension-related electronic payment. You can file your extension request by computer or mail the paper Form 4868 to the IRS.
The system will provide you with a confirmation number to verify that the extension request was accepted. Put this confirmation number on your copy of Form 4868 and keep it for your records. Do not send the form to the IRS.
For more detailed information on how to properly file an extension, contact the knowledgeable staff at Mark S. Freedman, CPA, Inc.
Filling Deadline and Payment Options
If you’ve waited a bit too long before filing your tax return and do not want to be on the wrong side of the April 15 deadline, don’t panic. There are several last-minute options. You can download forms and publications from the IRS Forms page under the Tax Tools tab on our website. If you find you need more time to finish your return, you can apply for a six-month extension using IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. If you are unable to pay your tax bill in full, the IRS has several payment options available to help.
The extension gives you the extra time you need to get your tax return to the IRS. However, it does not extend the time you have to pay any tax that is due. The onus is on you to estimate the amount of tax due when you request the filing extension. Although it is not required for you to send a payment immediately to receive the extension, you will owe interest on any amounts not paid by the April 15 deadline. This will also incur a late payment penalty if you have paid less than 90 percent of your total tax by that date.
To see what your filing deadline and payment options are, contact email@example.com for more information.
Where's My Refund?
If you are expecting a tax refund from the IRS this year and want to receive it in record time (within a few weeks) file it electronically and request direct deposit. The IRS takes six to eight weeks to send refunds on paper tax returns starting from the date they receive it. Filing electronically halves that time and direct deposit speeds the process even more.
However, filing electronically is not a guarantee of getting a faster tax refund. Your refund may be delayed for any number of reasons. Your name and Social Security number may not match up, you may have failed to sign the return or to include an attachment, or had errors in your calculations.
Once you’ve submitted the tax forms, your refund can be sent to you as either a paper check, used toward the purchase of up to $5,000 in U.S. Series I Savings Bonds, or deposited directly into your bank account (in either one or multiple accounts). Note: Some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted.
To check the status of an expected refund, use "Track My Refund," an interactive tool available at the top of our Links page (Check Your Federal Refund). The site allows you to check the status of your refund, once you identify yourself.
Feel free to contact our offices with any other questions regarding your taxes.
The Tax Advocate Service, Provided by the IRS
Have you tried everything you can think of to resolve a tax issue with the IRS to no avail? Are you facing an economic burden or hardship due to IRS collection or other actions? You may be able to get help from the Taxpayer Advocate Service, 1-877-777-4778.
You may request the assistance of the Taxpayer Advocate if you:
If you qualify, you’ll receive personalized service from a knowledgeable Taxpayer Advocate, who will listen to your situation, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved to the fullest extent permitted by law.
For any other IRS or tax questions, please contact the experts as Mark S. Freedman, CPA, Inc.
Tips and Taxes
If you work in a restaurant or hotel, drive a taxicab, or work in a hair salon or barber shop, the tip income you receive as an employee from those services is taxable. These tips are subject to federal income, Social Security and Medicare taxes, and in some cases to state income tax as well.
How can you keep track of everything? Here are some tips:
For convenience, you may want to use IRS Publication 1244, Employee's Daily Record of Tips and Report of Tips to Employer, to record your tip income. For a free copy of Publication 1244, call the IRS toll-free at 1-800-TAX-FORM (1-800-829-3676).
If you receive $20 or more in tips in any given month, you must report it to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes and to report the correct amount of your earnings to the Social Security Administration (which will affect your benefits when you retire or if you become incapacitated, or your family's benefits if you die).
To make sure your wages are properly reported, contact Mark S. Freedman, CPA, Inc.
10 Ways to Avoid Problems at Tax Time
Here are some IRS tips for avoiding the last-minute tax deadline rush.
Be Proactive. Resist the temptation to put off your taxes until the last minute. This increases your chances of overlooking potential sources of tax savings and will increase your risk of making an error.
Organize. Your tax preparation time can be significantly reduced if you have a system for organizing your records and receipts.
Visit the IRS.org Website. The IRS provides downloadable forms, publications and tax information.
Use the TelTax Service. You can listen to pre-recorded messages on about 150 tax topics by using the IRS TelTax toll-free service at (1-800-829-4477). It also provides federal tax forms and publications at 1-800-TAX-FORM (1-800-829-3676). You can also find many of the most requested forms in libraries, post offices, and banks. The IRS also staffs a Tax Help Line for Individuals at 1-800-829-1040. Help for small businesses, corporations, partnerships and trusts that need information or assistance preparing business returns is available at 1-800-829-4933. Both lines are staffed on weekdays from 7 a.m. to 7 p.m. your local time (Alaska & Hawaii follow Pacific Time). Hearing-impaired individuals with access to TTY/TDD equipment may call 1-800-829-4059 to ask questions or to order forms and publications.
Use IRS Taxpayer Assistance Centers and Volunteer Programs. You can receive free tax at IRS offices nationwide. Check your newspaper or local IRS office to find locations for Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) sites. To obtain the location, dates, and hours of the VITA or TCE volunteer sites closest to you, call the IRS toll-free Tax Help Line for Individuals at 1-800-829-1040 or on the IRS website.
Double-Check Your Entries. Review your return for possible math errors and make sure you have provided the names and correct (and legibly written) Social Security or other identification numbers for yourself, your spouse and your dependents.
Use Direct Deposit for Your Refund. To speed up your refund and reduce the chance of theft, ask the IRS to deposit it directly into your bank account. Check the tax instructions for details on entering the routing and account numbers on your tax return.
Don't Panic if Have to Delay Payment. If you can't immediately pay the taxes you owe, you can apply for an IRS installment agreement, suggest your monthly payment amount and due date, and get a reduced late payment penalty rate. You can also charge your balance on a credit card, either as part of an electronic return or directly through a processing agent. Electronic filers with a balance due can file early and authorize the government's financial agent to take the money directly from their checking or savings account on the April 15 due date, with no fee. Note: If you file your return or a request for a filing extension on time, even if you can't pay, you avoid potential late filing penalties.
Request an Extension of Time to File — But Pay on Time. You can get an automatic six-month extension of time to file your taxes by October 15. This does not give you an extension of time to pay, however. You can e-file a Form 4868, Application for Automatic Extension of Time to File, which is included in most tax preparation software, or send a paper Form 4868 to the IRS to request the extension. If you request the extension by electronic filing, be sure to have the adjusted gross income and total tax amounts from last year's return. You can also get an extension by going to Official Payments Corporation or Link2Gov Corporation and putting the expected balance on your credit card. There is no IRS fee for credit card payments, but the processors charge a convenience fee.
For any clarification on these tips or to get advice on any tax issue, contact us at Mark S. Freedman, CPA, Inc.
Mark S. Freedman, CPA Inc.
8949 Reseda Blvd., Suite 123
Northridge CA 91324